On October 6. 1979, the Federal Reserve announced what most people interpreted as a change in monetary policy. The purpose of this paper is to estimate the effects of this change on the 1980-81 economy. The effects of the change are estimated from simulations with my model of the U.S. economy (1976, 1980b).
For over twenty-five years there has been a secular divergence in the unemployment rates of black and white teenagers. Although the list of factors which may have contributed to the widening gap in the labor market experiences of black and white teenagers is quite long, there seems no reason, a priori, to believe that any one factor has operated in isolation, or with equal force, over the entire period. Suggested causes most frequently cited are: 1) differential growth rates in the black and white teenage populations; 2) an increasing difference in the employability characteristics of black and white teenagers, with black teenagers evidencing a decline in relative employability possibly due to widespread inadequacies in the quality of inner-city public schools; 3) employment decreasing effects of the minimum wage (although these should be race neutral in the absence of differences in employability or an employer preference for white over black youth); 4) an increase in labor market discrimination against black teenagers; 5) expectations among black teenagers with respect to wages and working conditions that have increased more than their attractiveness to employers; 6) increased competition for entry level jobs from other demographic groups (for example, adult white females); 7) the movement of industry out of central cities, reducing the number of entry level jobs available to residents left behind, for many of whom transportation to outlying areas is unavailable. Of the many factors cited, two (increased discrimination and increased expectations) have been the subjects of comparatively little empirical work to assess their relative importance. This is due not so much, I believe, to an inherent lack of interest on the part of researchers, but rather to the fact that, on the one hand, discrimination in the labor market is believed to have lessened considerably, and, on the other, the increased expectations hypothesis appears not to be readily amenable to quantitative empirical examination. The focus here is on the increased expectations hypothesis. In this paper I construct and present the results of estimating a model which I think gives us an indirect test of one dimension of the increased expectations hypothesis. Section I contains the conceptual discussion and model. Estimation results and some qualifications to these results are discussed in Section II.
In a recent article in this Review, Raveendra Batra and Rama Ramachandran showed that the traditional models of international trade can preserve most of the attributes introduced by multinational firms. As part of their exposition, they conducted a comparative statics analysis to explore the implications of taxes and tariffs on resource allocation and international capital movement. The purpose of this paper is to correct some of the comparative statics results. In Section I, I show some mathematical errors in Section IV of their paper. Making these corrections leads to some quantitative changes in their results even though their conclusions are still valid. In Section II, I will show that some stronger results follow so far as the implications of tariffs on the rental on multinational capital is concerned.
In the presence of a perfectly competitive market, a tariff cannot reverse trade flows. The imposition of a nonprohibitive tariff on an imported commodity merely reduces the volume of imports. The levy of a prohibitive duty eliminates trade; it does not cause the good to be exported. However, in the presence of a single domestic producer, the levy of a tariff on an imported commodity may lead the economy to begin exporting the commodity. In this paper I explore this latter case, examining also the welfare implications of such a tariff. Consider an economy which, under free trade, imports a given commodity that is also supplied domestically by a single producer. All other markets are assumed to be perfectly competitive. The economy is assumed to be a price taker in the world market for this good; hence, the domestic producer is confronted with international competition in perfectly elastic supply. In Figure 1, Pw is taken to be the world price of the good;' D represents the (real income constant) domestic demand for the good; MR represents the marginal revenue derived from D; and MC depicts the producer's marginal cost. Under free trade, the domestic price equals the world price. The producer's output Of 0Q2 units is sold domestically, and imports are Q2Q6 units. If a tariff rate of t, is imposed on imports, the domestic price increases to (1+t,)PW. The producer's output increases to oQ3 units and domestic consumption declines to oQ5 units. The government is the recipient of tariff revenue equal to t,Pw multiplied by Q3Q5. Although the profits of the producer's increase and additional revenue accrues to the government, together they are less than the loss in consumers' surplus. Accordingly, domestic welfare declines as a consequence (1 + t4)PPw MC